Decoupling Direct Payments and the Dynamics of Decisions under Price Risk in Cattle Farms

The impact of decoupling direct payments from production on producers' decisions, taking account of price uncertainty and risk aversion, is analysed through a multi‐period mathematical programming model. This model is applied to beef cattle farms in two French regions: Limousin and Pays de la Loire. The technical coefficients are represented by an engineering production function estimated for both regions. The behavioural parameters have been obtained through a survey and model calibration. Policy changes have been modelled through different simulation scenarios relating to the decoupling of direct payments. Model results show that decoupling policies produce a more homogenous response from different types of farmers. The share of cattle activities on farms decreases and the production techniques become less intensive.